The pace of growth in the value of contracts for sugar reached a maximum of seven years that is since 2009, leading to a rise in sugar prices worldwide. So, for the 2016 sugar futures price rose by 28%, this was the best indicator in the index among agricultural commodities in the Bloomberg Commodity Index. The reason for price rise at the world sugar market was the drought in India, provoked by the natural phenomenon El Niño (fluctuation in temperature of the water surface of the Pacific Ocean near the equator).
In 2017-2018 years the world's stocks will exceed demand by 1-3 million metric tons, experts predict. At the same time, they expect to increase production of sugar in Asia, the greater number of the crop in the EU, as well as the stable production in Brazil. "By the end of season stocks become scarce, so it is necessary that Brazil once again has a very big harvest," - said the head of the research department of a trading company.
World sugar stocks will be reduced to 77.2 million tons this season, which is a minimum of five years, according to experts from the brokerage firm. This means that, perhaps, the price of futures will vary depending on the potential disruptions of production, and traders need to make an assessment of the market, based on the increase in risk. World stocks dropped, and Brazil and India are still in doubt. The market should assess the risk premium because any failures can make investors nervous.
The deficit in the world sugar market in the current year could reach 9 million tons. According to preliminary estimates, it is expected that growth of sugar consumption will reach 178 million tons, while the projected production capacity will reach 169 million tons.
According to experts, in the season 2016/17, there are such basic elements of the market deficit as expected higher consumption than production, a very delicate balance and a possible reduction in the coefficient of stocks/consumption to a critically low level.
In addition, lower prices may be offset by critically low stocks, which are expected at the beginning of next season.